A Better Baltimore, Part I: Property Taxes

Last week, I wrote about Baltimore and about how Baltimore is a problem that belongs to all of us. This is the first in a series of ways that Baltimore;s problems can be fixed.

This week, Mayor Stephanie Rawlings-Blake outlined her FY2016 budget, and her budget does not address one of the fundamental issues faces the city:

Mayor Stephanie Rawlings-Blake has formally ruled out a property tax cut for the coming year after flirting with the idea of giving one….

…..In a statement, the mayor did explain why she ultimately ruled out a cut for the coming year, but said she was “ahead of schedule” on her plan.

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“Those who remember the budget crises of just a few years ago know that Baltimore was not always as fortunate to be in the position we find ourselves today,” she said. “We are investing in key priorities like public safety, education, and blight elimination without burdening residents with more taxes. My goal is to continue pressing forward with my 20 cents by 2020 plan until all of the tax relief promised to city residents is realized.”

Property taxes are one of the biggest challenges facing city residents. Higher property taxes create problems for all of the city residents. Higher income people, who have the means to leave the city, have the opportunity to pull up and move to the suburbs where property taxes and the cost of living are both generally lower. Poorer city residents get nailed twice with the city’s higher property taxes:  once due to property taxes on businesses and once on the taxes on residences. Higher property taxes paid by businesses means that businesses have a lessened ability to create jobs in the city, both within their own businesses and due to lower expendable income they could use to buy goods and services from other businesses in the city. Residentially, residents who are already living at the edge of poverty or beyond will either be forced to pay higher taxes on the residences they own, or they will need to pay higher rents on their rental property. Those who are already in government or subsidized housing will find it harder to escape the cycle of dependency due to businesses having that reduced purchasing power.

That’s how serious of a problem that property taxes are.

One of the reasons that property taxes aren’t going lower this year is the lack of political will by the Democratic machine that’s been in power in Baltimore for fifty years. City Council President Jack Young (last seen having a press conference with gang members) justified the lack of property tax cut based solely on the idea that people wouldn’t care and that it was an opportunity to (what else) expand government services:

City Council President Bernard C. “Jack” Young said that in the light of unrest sparked by Gray’s death in police custody, he thinks the city needs to look for ways to invest in jobs programs and other initiatives. In that context, he said, he thinks holding the line on property taxes would be palatable to most residents.

“I don’t think in light of what’s going on that the city’s residents would care about two cents,” he said.

Young is certainly right that that they aren’t letting the opportunity to increase government services go to waste, as city spending is increasing 4.6% in this year’s budget, justified by the fact the higher property values artificially increase city revenues without changing the property tax rate.

Something, however, has to be done. And economist Anirban Basu absolutely nails it:

Economist Anirban Basu of the Sage Policy Group agreed that “the timing is a little awkward. It feels like there’s such bigger issues than a little bit of a tax reduction for homeowners in Baltimore City.”

But, he said, “one of the things that the past couple weeks reminded us was that the middle class in Baltimore is not particularly large. One of the things that was highlighted last week was that the gulf between the have and have-nots in Baltimore is massive.”

Basu argued that a slow-but-steady approach to trimming the property tax rate would help entice businesses to reinvest in the city and to make middle-class families more willing to move in.

And he’s right. The fact of the matter is that the cost of living in Baltimore is far too high to attract businesses and middle-class residents. Those two go absolutely hand-in-hand.

So, how do we create an economic environment in Baltimore that attracts news businesses and new revenues? Here’s how:

  1. Drastic Property Tax cuts: Continue reducing property taxes for all Baltimore residents and properties. Reduce the property tax by 20-cents a year for the next five years, reducing the property tax by an additional $1 per $100 of assessed value. This would bring the Baltimore City property tax rate down from $2.248 per $100 of assessed value to $1.248 per $100 of assessed value. While this would still be the highest property tax rate in Maryland, it would be far more comparable to the city’s neighbors in Anne Arundel County ($0.943 per $100) and Baltimore County ($1.1 per $100).
  2. Eliminate All Existing Special Tax Districts: Currently, Baltimore City has four special tax districts that pay lower tax rates than the rest of the city: The Downtown Management Partnership, the Charles Village District, the Midtown District, and the Waterfornt District. All pay drastically lower property taxes than the rest of Baltimore City. Given the economic advantages these areas of the city has, it makes no sense for these districts to have a virtually non-existent property tax as compared to other parts of the city. These districts should be eliminated so that they pay the same rate as the rest of the city.
  3. End PILOTS: As I mentioned previously, Payments in Lieu of Taxes (PILOTS) artificially lower the amount of property tax revenues collected by the City in order to spur economic development. While these PILOTS do in fact spur development, they do allow the City to choose winners who get an economic advantage and losers that don’t. And often time, the winners are those with the most political connections. The City should not be in the business of picking winners and losers, and certainly not in the business of giving economic advantages to the politically connected. Therefore, existing PILOTS should be phased out and no more PILOTS should be allowed between City governments and business.
  4. Create Tax-Free Renaissance Zones: Baltimore’s most economically disadvantaged neighborhoods are the districts that truly need more assistance and lower property tax rates as compared to the more affluent areas. Something drastic needs to be done in order to spur economic growth and reinvestment in those communities. Other states, such as Michigan, implemented “Renaissance Zones” which provided tax-free redevelopment zones in economically distressed areas. Therefore, the City should create Renaissance Zones to allow Baltimore’s most economically disadvantaged communities to be exempted from property taxes for ten years in order to spur economic development and reinvestment.

Let’s face it: Baltimore needs a radical change in order to attract businesses and residents to a once prosperous city. These changes are a drastic change in the way the Baltimore collects property taxes. Given the addiction of City Democrats to tax revenues and political favors, they have virtually no chance of being passed in Baltimore any time soon. But these changes are drastic because Baltimore’s problems are drastic and call for drastic reforms. If Baltimore’s elected leaders are truly serious about growing the city and cultivating a growing middle-class, they should at least consider drastic changes such as these.

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